Retirement (Review Every Day)

Question 1

SEP

• filing requirements
• contribution limit
• participation
• establishment of a SEP
• permitted disparity?
• vesting and withdrawals

Answer 1

used by small business and sole proprietors

• no filing requirements
• contributions are limited to the lesser of 25% of compensation or $58,000 – ER contributions are discretionary, contribution must be made to ALL EE
• participation (> 21 yrs old, performance of service for 3 of the last 5 years, compensation of >$600)
• may be integrated with SS
• NO vesting for ER contributions
• EE can can withdraw funds in any amt

Question 2

Top Heavy

Answer 2

DC Plan -> 60% of account balance attributable to key employees

DB Plan -> 60% of accrued benefits attributable to key employees

Question 3

key employee

and it’s affect

Answer 3

> 5% owner

> 1% owner with compensation with excess >$150,000

Officer and Comp > $185,000

top heavy affects
DC - 3%
DB 2%

Vesting 2-6 graded or 3 year cliff

Question 4

highly comp

Testing

Answer 4

> 5% owner

comp > $130k (top 20% election?)

testing - coverage testing and adp/acp testing

Question 5

Actuary for

• DB
• Cash Balance
• Target Benefit

Answer 5

Annually for DB and Cash Balance

at Inception - Target Benefit Pension

Question 6

SS Wage Base

Answer 6

$142,800

Question 7

what plan(s) do or don’t allow integration?

Answer 7

DOES NOT ALLOW INT:

- salary deferral + ESOP
ex: 401k feature no integration

Question 8

what is 403b plan eligibility?

Answer 8

21 and 1 yr of service

Education - may be 26

Question 9

is 403b subject to payroll tax?

Answer 9

yes

Question 10

403 b plan special catch up

Answer 10

permits up to additional $15,000 (max $3,000/yr) of contributions

may have completed 15 years

only applies to HER organizations (health, education, religion)

Question 11

403b max deferral

Answer 11

19,500 EE deferral
6,500 age 50 over
3,000 special catch up

Question 12

what funds can be in a 403b?

Answer 12

annuity contracts

mutual funds

Question 13

catch up for 457b public vs private?

Answer 13

yes 50+ for public

no for private

Question 14

457 special catch up

Answer 14

3 years prior to normal retirement age (plan document will say retirement age) can defer an additional $19,500

needs PRIOR UNUSED deferral

cannot include 50 and over catch up contribution when determining the 3 year catch up (or for private 457)

Question 15

457f plan

Answer 15

INELIGIBLE

governmental and tax exempt 501c

not protected by trust

NO CONTRIBUTION LIMIT

Key Management and HC

Yes pretax and tax deferral

no catch up (b/c can put 100% $ in)

rollovers are not permitted *most NQ plans cannot do rollovers except for some 457 gov plans

Question 16

SIMPLE - employer yearly contribution

Answer 16

The employer’s yearly contribution can be either a matching contribution up to 3% of compensation or a 2% nonelective contribution for each eligible employee (up to $290,000)

Question 17

does an ER have to contribute to a SIMPLE plan?

Answer 17

require ER to make a min contribution to EE’s acct

Question 18

what is a nonelective contribution?

Answer 18

ER choose to direct toward their eligible workers employer sponsored retirement plans regardless if EEs make their own contributions.

issued at the discretion of the ER and can be changed at any time

contributions of this type can gain an ER IRS safe harbor protection

Question 19

requirements for an EE to qualify for a SIMPLE

Answer 19

EE who received $5,000 or more in compensation from an EE during any 2 previous calendar year

Question 20

403b vesting schedule

Answer 20

100% at all times for contributions and earnings

Question 21

does 403b allow in service withdrawals?

are loans permitted?

Answer 21

Yes (regular qualified plan rules on loans if plan permits)

generally no in service withdrawals, except hardships, which are plan specific

Question 22

403b catch up?

Answer 22

50+ yrs old can permit $6500 catch up and extra $3,000 for 15 yr rule catch up

Question 23

how someone can qualify for long service catch up for 403b

Answer 23

the business has to be a Health, Education, or Religious Organization (HER)

Question 24

Jake established a traditional IRA five years ago at a local financial institution. He is considering the purchase of a limited partnership interest with his IRA funds. A CFP® professional would inform him that some of the income earned by the limited partnership may be taxable to Jake because of which rules?

A. Front-loading.

B. Prohibited IRA investments.

C. Unrelated business taxable income.

D. At Risk Rule.

Answer 24

Solution: The correct answer is C.

Unrelated business taxable income is often reported on limited partnership K-1s. This would potentially cause some of the partnership earnings to be taxable currently, even though the partnership interest is held inside an IRA.